The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Sameer Jain, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur.
This Friday the we witnessed a major downturn in the various Indian markets. In the stock market the sensex was at the 19 month low. BSE sensex was plummeted 318 points or down 1.3 %, while the Nifty was closed 99 points down or 1.31 %. In the currency market Rupee slipped 67.50/$ to a fresh 29 months low of 67.61/$. The crude prices went below 30$/barrel and gold prices were down Rs 115 on Friday.
This turmoil in the Indian market is majorly attributed to the instability in the global markets. China stocks closed 3% lower, European markets were down more than 1%, and the futures trading showed a soft opening in the US market. It This created a negative sentiment among the investors. As a result foreign investors pulled out over Rs 1100 crores from the markets on Friday. It is estimated that FIIs have pulled out over Rs 4500 crores out of the Indian equity market since the beginning of this year.
As shown in the below graph, BSE sensex is down 6.36% since the beginning of this year.
While this turmoil is a result of negative sentiment in the market, it can be used as an opportunity for investment. As Petyr Baelish said “Chaos isn’t a pit. Chaos is a ladder.” Volatility in short term is a characteristic of the stock market. The current downturn in stock market have dropped the stock prices to a level that doesn’t attribute to the company’s performance. The herd mentality in the stock market has dropped the stock prices of companies which are still fundamentally strong. Given the positive outlook about Indian economy and reforms (GST, Maked in India, etc.) this provides an opportunity to the investors to recognize such stocks and invest in them at a lower price, and get a good return in long term.
References – http://www.business-standard.com/article/markets/mkts-slide-as-global-worries-persist-116011600028_1.html http://www.moneycontrol.com/india/stockmarket/foreigninstitutionalinvestors/13/50/activity/FII. http://www.thehindubusinessline.com/markets/the-stock-market-crash-is-an-opportunity-for-the-longterm-investor/article8089325.ece